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What the U.S. Health Care System Can Learn From India’s Private Heart Hospitals

Duke University researchers point to three solutions for rising costs

In 2008, two Duke University researchers, Barak D. Richman, JD, PhD, and Gerald A. Schulman, MD, MBA, explored the emergence of private heart hospitals in India whose outcomes rivaled those of top U.S. hospitals (low infection and readmission rates for coronary artery bypass grafting, angioplasties, and other cutting-edge procedures) at between one-tenth and one-twentieth the cost. They concluded that American hospitals could learn a great deal from the organizational focus and structure of their Indian counterparts. Now, a decade later, they report that little has changed in this country.

“Given ongoing cost struggles in the United States, it is more important than ever to understand why U.S. hospitals have failed to provide high quality care at affordable prices,” the two investigators write.

In their article, posted on the NEJM Catalyst website, they highlight three key changes that U.S. health care policymakers can make to match the benefits achieved abroad.

  • Business Strategy: Focus on cost reduction to provide value to the consumer.

In India, Richman and Schulman write, the majority of people pay for private health care entirely out of pocket with very limited budgets. In this competitive environment, Indian heart hospitals must compete for scarce consumer dollars, driving leaders to scrutinize each element of their operations for opportunities to conserve costs.

U.S. hospitals, on the other hand, have oriented their business strategies toward obtaining market leverage and exerting monopoly power in setting prices. Because this leverage is accumulated to extract higher prices from insurers and not patients, providers give little thought to what consumers actually can afford, the authors say.

  • Workforce Regulation: Enable de-skilling of tasks and efficient use of expensive personnel.

A key factor in Indian hospitals’ success is their ability to use and train unskilled personnel for key roles, a practice that innovation scholars call “de-skilling” or “right-skilling,” Richman and Schulman point out. Women from rural villages with only a rudimentary education, for example, are trained to use sophisticated equipment and to manage the delivery of medical services, such as administering dialysis. Meanwhile, physicians play key strategic and supervisory roles, passing down knowledge and tasks to lesser-trained individuals wherever possible.

In contrast, American laws prohibit U.S. hospitals from pursuing many of these de-skilling strategies, the authors note. Rather than focusing on technical proficiency and the quality of service, U.S. regulations codify task-staffing requirements, which are often linked to specific educational attainment. For example, each state maintains complicated occupational licensure regimes that delimit which categories of personnel can perform which tasks. According to Richman and Schulman, these regulatory regimes are particularly resistant to innovators because they are maintained by professional societies that profit from the status quo.

  • Costs of Payment Administration: Reduce the complexity of billing and payment at a system level.

The authors point out that India is largely a cash pay market without third-party payment, which means that hospitals collect payments from patients much like hotels collect payments from visitors. In contrast, the multi-payer environment in the U.S. has evolved to have numerous layers of overlapping and divergent payment models and rules. This complexity drives enormous overhead costs in back-office functions, electronic medical record (EMR) systems, and clinical time devoted to documentation for billing and compliance purposes.

Richman and Schulman note that while a 400-bed Indian hospital may have fewer than 20 people on its whole management team, U.S. hospital systems have constructed entire office buildings to house their billing and administrative teams.

“By focusing strategy on creating value instead of acquiring market leverage and monopoly, by loosening regulation to permit creative innovation within organizations and markets, and by addressing the sources of administrative complexity, we can enable American health care providers to address what is becoming our most intractable national economic problem,” the authors conclude.

Source: NEJM Catalyst; May 25, 2017.

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